USDA Economist Talks Ag Economy

After two boom years for net farm income, 2009 is going to see a retrenchment as farmers deal with softer crop prices and lagging livestock returns. That was one of the messages delivered by James Hrobovcak, USDA deputy chief economist, during a presentation this week in Washington DC.

Hrobovcak says the agency is still forecasting net cash income at $77 billion, a drop of $16 billion from 2008 but "still high from historical measures" he says. And farmers have strong balance sheets with debt at 9.1% of total assets versus the ag economic debacle during the 1980s.

During a media discussion, Hrobovcak covered a wide range of topics, but there were two interesting areas that farmers should keep an eye on. First is the move by California and its low-carbon fuel standard. There's been quite a bit of talk about this standard which will not only measure direct carbon from the making of a renewable fuel, but also include potential land-use changes as well. That means looking at the "indirect emissions" including the greenhouse gas profile, he says.

He explains that if California adopts a strict land use change standard, "zero amount of corn based ethanol from the Midwest" will go to the state. California currently has 11 to 12% of the U.S. gasoline consumption. Add in that 11 Northeast states will adopt the new California standard, once established - which would add another 30% of gas use that would lock out Midwest-based ethanol.

The California standard is currently being reviewed by the state and major farm groups are involved in providing more info about land use. Hrobovcak notes that California is working with a lot of models and scenarios to make their decision. "This is uncharted territory regarding what type of land can come back into production," he notes.

Hrobovcak notes the next big report to come from the agency will be May 12 when USDA releases its latest supply and demand estimates.